1. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2001. All Rights Reserved. 8-1 C HAPTER 8 Personal Finance Consumer Purchasing Strategies and Legal Protection Kapoor Dlabay Hughes 6e

2. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2001. All Rights Reserved. Financial Implications of Purchasing Decisions Commonly overlooked trade-offs when buying include…  Paying a higher price over time by using credit to buy items you need now.  Buying unknown, possible poor-quality brands that are less expensive.  Selecting brands that may be difficult to service or repair.  Ordering by mail or online can save time and money, but may make return or repair difficult.  Taking time and effort to comparison shop. 8-2

3. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2001. All Rights Reserved.  CPI- inflation  Interest rates  Supply/demand  Brand name  Warranty  Product Quality  Tax rates Economic Factors  Lifestyles  Culture  Attitudes  Ads/media  Hobbies  Peer group Social Factors  Sex and age  Marital status  Occupation Personal Factors  Income  Education  Family size  Housing type  Ethnic group  Religion Consumer Buying Influences 8-3

4. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2001. All Rights Reserved. Consumer Purchasing Phase 1: Preshopping Activities n Problem identification. n Information gathering.  Costs - price variance.  Options - who offers brands and services.  Consequences - to time, health and financial situation. Information sources.  Personal contacts and experience of others.  Business organizations advertising & media.  Independent testing organizations.  Government agencies.  Online - company web sites. 8-4

5. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2001. All Rights Reserved. Consumer Purchasing Phase 2: Evaluation of Alternatives Attribute assessment. Based on personal values and goals, time and money, costs and benefits, and specific needs with regard to product size, quality, quantity, and features. Four steps to take include...  Identify attributes such as features, performance, design, and warranty, and assign a weight based on attribute importance. See Consumer Reports and the Web.  Select brands to be evaluated.  Rate each brand (from 1-10) based on the attributes you identified to get a weighted score.  Total and assess the results. 8-5

6. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2001. All Rights Reserved. Consumer Purchasing Phase 2: Evaluation of Alternatives (continued) Price analysis.  Assess differences in quality in relation to price.  Price and quality are not always closely related. Comparison shopping can be beneficial when...  Buying expensive or complex items.  Buying items that you purchase often.  Comparison shopping can be easily with ads, catalogs or online.  Product quality or prices vary greatly. 8-6

7. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2001. All Rights Reserved. Consumer Purchasing Phase 3: Selection and Purchase Negotiation may be used on some products.  Have all the necessary information.  Deal with a person who has the authority to give you a lower price or additional features. n Decide on cash or credit. If credit, consider...  Different places to borrow.  Different types of credit accounts.  Different down payment options.  Different payment periods. n Get all acquisition and installation costs and conditions in writing. 8-7

8. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2001. All Rights Reserved. Consumer Purchasing Phase 4: Postpurchase Activities n Maintenance and ownership costs may be associated with some purchases. n Correct use means improved performance and fewer repairs. n Investigate, evaluate and negotiate a variety of servicing options. n Complain if you are not satisfied with a purchase. n Consider what you have learned from the purchase. 8-8

9. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2001. All Rights Reserved. Practical Purchasing Strategies n Timing purchases.  Be aware if the price varies with the time of the year. n Store selection.  Pick a merchant that meets your needs for store policies, services, quality and variety of merchandise, and store hours, location, reputation, and accessibility of alternatives. n Brand comparison versus impulse buying.  Store brands can be low-cost alternatives. n Look for label information, such as open dating. 8-9

10. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2001. All Rights Reserved. Practical Purchasing Strategies n Price comparison.  Unit pricing provides a standard of measurement.  Coupons and rebates (partial refund).  More convenience and ready-to-use products, may mean higher prices.  “Sale” does not always mean saving money. Evaluate warranties.  Full or limited express warranties.  Implied warranties of fitness and merchantability. Service contracts - also called extended warranties. (continued ) 8-10

11. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2001. All Rights Reserved. Steps for Resolving Consumer Complaints  Return to place of purchase.  Contact the company’s main office via telephone or their web site.  Obtain assistance from a consumer agency.  Better Business Bureau web site to file a complaint on line: http://www.bbb.org.  Local Better Business Bureau.  Mediation.  Arbitration.  State consumer protection office or agency.  Federal agencies. 8-11

12. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2001. All Rights Reserved. Steps in Resolving Consumer Complaints  Take legal action.  Small claims court.  Class action suits.  Use a lawyer.  Other legal alternatives.  Legal aid society.  Prepaid legal services.  Research legal questions at www.nolo.com. (continued) 8-12

13. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2001. All Rights Reserved. Personal Consumer Protection To protect yourself as a consumer…  Deal with reputable companies.  Avoid signing contracts and other documents you do not understand.  Be cautious about offerings that seem too good to be true - they probably are.  Compare the cost of buying on credit with the cost of paying cash. Compare interest rates the seller offers with other sources.  Avoid rushing to get a good deal. 8-13

14. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2001. All Rights Reserved. C HAPTER 8 Appendix 8-14 Kapoor Dlabay Hughes Personal Finance 6e Buying and Operating Motor Vehicles.

15. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2001. All Rights Reserved. Buying a Used Vehicle Sources of used vehicles.  New-car dealers.  Used-car dealers.  Private parties. Consumer protection for used car buyers. 8-15

16. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2001. All Rights Reserved. Inspecting a Used Car Outside the car. Inside the car. The engine.  Mechanic’s inspection.  Odometer fraud. The road test. 8-16

17. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2001. All Rights Reserved. Used Car Price Negotiation Price information sources  Edmund’s Used Car Prices or edmunds.com edmunds.com  NADA Official Used Car Guide.  Kelly Blue Book kbb.comkbb.com 8-17

18. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2001. All Rights Reserved. Negotiating the Price Sticker price - suggested retail price. It includes the base price of the plus accessories. Invoice price - dealers cost +- Know the dealer’s cost by consulting...  Consumer Reports consumerreports.org consumerreports.org  Edmund’s New Car Prices edmunds.com edmunds.com 8-18

19. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2001. All Rights Reserved. Selecting Options Mechanical devices.  Engine size.  Cruise control. Comfort and convenience options.  Air conditioning.  Stereo systems. Aesthetic features.  Special paint.  Mag wheels. Service contract. 8-19

20. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2001. All Rights Reserved. Determining a Purchase Price Price bargaining. Set-price dealers. Car buying services.  Also called an auto broker. Online car buying. The sales agreement. Consumer protection for new-car buyers. 8-20

21. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2001. All Rights Reserved. Financing an Automobile Purchase Financing sources.  Banks, credit unions, finance companies, or dealer financing.  Many lenders will preapprove a certain amount. Consider the length of the loan.  Upside down equity means that your car is worth less that what you still owe on the car loan. 8-21

22. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2001. All Rights Reserved. Leasing a Vehicle Advantages.  Small cash outflow.  Lower monthly payments than buying.  Lease provides detailed records. Disadvantages.  No ownership interests.  Must meet requirements.  May have additional costs. 8-22

23. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2001. All Rights Reserved. Costs of Operating a Car Fixed Costs.  Depreciation.  Interest on loan.  Insurance.  License, registration & taxes. Variable Costs.  Gas and oil.  Tires.  Maintenance & repairs.  Parking and tolls. 8-23

24. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2001. All Rights Reserved. Servicing Your Car Follow the maintenance schedule in the manual. Vehicle servicing services.  Car dealers.  Automobile repair shops.  Service stations.  Discount stores. Specialty shops.  Jiffy Lube.  Midas. 8-24